Is Chapter 7 The Right Choice For You?

One of the biggest questions a client will have for a Chapter 7 bankruptcy attorney is whether this particular approach is the right one for them. A bankruptcy attorney can't guarantee that any specific approach is perfect for a client, but they can look at a handful of common factors and advise people based on experience. Here are four things a lawyer will assess to determine if Chapter 7 bankruptcy is a good option for a client.

Are There Other Options?

This includes solutions within and beyond the bankruptcy system. For example, are your biggest creditors willing to negotiate? If not, might restructuring your debts under Chapter 11 prove to be a better option?

Chapter 7 bankruptcy is considered a fairly drastic solution. It leads to the liquidation of your disposable assets, meaning you'll only be left with the things you need to get by. That means things like your clothes, a practical vehicle, dinnerware, and so on. Other items, such as extra vehicles, a second house, and luxury goods, will be liquidated with the proceeds used to pay your creditors.

How Difficult Are Your Finances?

It's important to distinguish between a tough situation and one with no realistic chance of escape. Chapter 7 bankruptcy is designed for folks who have little hope of ever paying down their debts based on their current financial circumstances. The goal is to make a reasonable effort to pay as much to your creditors as possible, but then the issue is done once the sale of your assets concludes. All remaining debts will be discharged.

Notably, the court will also want proof your situation is bad enough to justify a Chapter 7 filing. If you have enough money to pay a lower amount, the court may encourage you to file again under Chapter 11.

Types of Debts

Only unsecured debts may be discharged in a Chapter 7 bankruptcy case. Unsecured debts are ones based on your personal credit, including personal loans, credit card debts, and utility bills.

Secured debts are ones that are backed by assets, such as buildings and vehicles. A bankruptcy attorney can only address secured debts through restructuring. Notably, Chapters 7 and 11 aren't mutually exclusive. It is possible to discharge debts under Chapter 7 and then set up a restructuring plan.

Recent Bankruptcies

The law limits how often you may file. You can seek a Chapter 7 discharge every 8 years. It doesn't matter if you've previously filed for restructuring and the plan failed.

For more information, contact a bankruptcy attorney in your area.